TABLE OF CONTENTS Every jurisdiction has its own tax policies and rates, as well as procedures and means of enriching the government's coffers. While there is a myriad of taxes, only two of them are of interest in this appendix, because they are the only ones that may be applicable to transactions involving derivative instruments and structured products:
Wealth tax, and
Income tax.
Moreover, because derivatives deals are increasingly used as means for tax evasion, this appendix will look at how people and companies try to engineer what they call 'tax optimization' through derivative financial instruments and their alter-ego, the offshores.
In contrast to real property such as land and buildings, the ownership of financial instruments usually leaves no footprint regarding a person's or a company's wealth. This is an important consideration as far as taxes are concerned. Invented by socialist governments to appease the 'have-nots', wealth tax has been one of those measures that proved to be ineffective and counterproductive, but it is still practised in many jurisdictions.
If governments have taxation, investors have their own adage, which says: 'Money is like hearts. It goes where it is appreciated.' Some jurisdictions have taken note of it. Indeed, the majority of wealthy countries cut their top tax rates by an average of 2.4 percentage points between 2000 and 2005 because of growing concern about disincentives of overtaxing personal income and wealth.
While a system of checks and balances is of crucial importance in fighting tax evasion, too much...
